SARLA RAJKUMAR VARMA V. ASSTT.COMMISSIONER OF INCOME TAX

SCA/125/2014

AI Insights

The case involves Sarla Rajkumar Varma, the petitioner, who challenged the notice issued by the Assistant Commissioner of Income Tax for reopening her assessment for the year 2009-2010. The original assessment had allowed a deduction under section 80IB(10) of the Income Tax Act, which was later contested by the Assessing Officer based on the claim that the housing project was not completed within the stipulated time. The court examined whether the reopening of the assessment was justified and found that it was based on a mere change of opinion rather than new material, leading to the quashing of the notice.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 761088 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 11-02-2014
• Assessment Year: misc
• Other Referred Cases: Ess Ess Kay Engineering Co. P. Ltd. v. Commissioner of Income-tax, Phool Chand Bajrang Lal and another v. Income-tax Officer and another, Multiscreen Media Private Limited v. Union of India and another, Devgon Rice and General Mills v. Commissioner of Income-tax and another, Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income-tax, Commissioner of Income-tax v. Usha International Ltd., Cliantha Research Limited v. Deputy Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S UDHIR M EHTA
• Assessee Lawyers: MANISH SHAH
• Keywords: Change of opinion; Deduction under Section 80IB(10); Reopening of assessment; Validity of notice
• Section: 143(3); 80IB(10)

Judgement Text

"C/SCA/125/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 125 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ SARLA RAJKUMAR VARMA....Petitioner(s) Versus ASSTT.COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Page 1 of 16 C/SCA/125/2014 JUDGMENT Date : 11/02/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Rule. Learned counsel Shri Sudhir Mehta waived service of rule. The petition is heard finally. 2. The petitioner assessee has challenged notice dated 30.08.2011 issued by the respondent Assessing Officer seeking to reopen the assessment for the assessment year 2009­2010. Originally the assessment was completed after scrutiny. 3. The Assessing Officer supplied the reasons recorded for issuing the notice which read as under : “You, have filed your return of income for the year on under consideration 29.09.2009 declaring a total income of Rs.1,25,584/­. Assessment in your case was completed u/s.143(3) on 28.12.2011 determining the total income of the assessee Rs.19,08,530/­. On going through the records, it is seen that the plan for plotting and construction for one of the projects, M/s. Shiv Abhishek was passed on 05.02.1997 which was the first plan put up by you for approval. Subsequently modified plans of the same projects were also approved by the local authorities. You had claimed a deduction of Rs.21,59,675/­ on the said project u/s.80IB(10) of the Act. While completing the assessment, the assessing officer had disallowed deduction of Rs.17,82,842/­. Thereby, allowing deduction of Page 2 of 16 C/SCA/125/2014 JUDGMENT Rs.3,76,733/­ only. As per the provisions of section 80IB(10), whenever approval of housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which such housing project was approved for the first time by the local authority. As such, as per the provision of section 80IB(100) deduction would be allowable in this case only if the project is completed on before 31.03.2008. In the instant case, the construction of the project was completed on 10.01.2010. Thus, the project was completed after the stipulated time limit, by virtue of which, you failed to satisfy the said condition laid down in the said section for availing deduction. As such, you are not eligible even for deduction of Rs.3,76,733/­ and this amount of Rs.3,76,733/­ requires to be taxed. Thus on the facts of the case, the undersigned is also reasonably satisfied and has the relevant reasons to believe that there has been escapement of income on account of original assessment whereby excessive allowance under the Act has been computed, which requires reconsideration and reassessment. Therefore, on the facts of the case, your case for A.Y. 2009­10 has been reopened for reassessment of such income to tax, which has escaped assessment.” 4. The petitioner raised her objections to the reopening of the assessment under a communication dated 18.10.2013. She contended that claim of deduction under section 80­ IB(10) was examined at the time of original assessment. She additionally contended that the ground on which the assessment is sought to be reopened lacks validity. She pointed out that the housing project was approved only on 5.2.1997. She contended that an application for development of housing project was made only on 11.6.2006 which was granted on 23.2.2007. Subsequently, Page 3 of 16 C/SCA/125/2014 JUDGMENT also there was an application for permission to revise the construction plan which was also granted on 10.1.2010 and thus within the time specified in section 80­IB(10) of the Act, to enable her to claim the deduction. The Assessing Officer however, rejected the objections by his order dated 4.12.2013. Hence this petition. 5. Learned counsel Shri Manish Shah for the petitioner drew our attention to the assessment order dated 28.12.2011 in which the Assessing Officer had examined the claim of the assessee for deduction under section 80­IB(10) of the Act. He pointed out that after detailed discussions, the Assessing Officer disallowed substantial claim made by the petitioner. The petitioner carried the matter in appeal. CIT(Appeals) by his order dated 7.10.2013, allowed the appeal and granted full deduction claimed by the petitioner. The counsel also drew out attention to the sale deed dated 19.1.2007 under which the petitioner purchased the land in question from the seller who himself was not the original owner but had purchased the same from the erstwhile owners. On the basis of such documents, learned counsel Shri Shah raised the following contentions : 1) That the Assessing Officer having examined the claim of the petitioner for deduction under section 80­IB(10) of the Act in the original assessment, any action on his part to disallow such claim would be based on mere change of opinion. Reopening of assessment even within four years, therefore, would not be permissible. Page 4 of 16 C/SCA/125/2014 JUDGMENT 2) That the reasons recorded by the Assessing Officer for issuing the impugned notice itself lacks validity. Counsel would contend that the development permission was granted only in February 2007 contrary to what is recorded by the Assessing Officer. In the year 1997, only permission granted by the local authority was to make the plots in the land. This cannot be equated with permission of development for housing project which is crucial for the purpose of deciding claim under section 80­IB(10) of the Act. 6. On the other hand, learned counsel Shri Sudhir Mehta for the Revenue opposed the petition contending that in the original assessment, though the claim for deduction under section 80­IB(10) of the Act did come up for consideration, this crucial aspect of the housing project not having been completed within 10 years as per the deed for grant of development permission by the local authority, was never examined. He would therefore, contend that there is no change of opinion on part of the Assessing Officer since he in the original assessment had expressed no opinion at all on this aspect. Counsel further contended that without full material on record, it would not be appropriate to accept the petitioner’s contention that the development permission was granted only in February 2007 and not in the year 1997 as contended by the Assessing Officer. This aspect must be left to be judged in regular assessment proceedings. In support of his contentions, counsel relied on the following decisions : 1) Ess Ess Kay Engineering Co. P. Ltd. v. Page 5 of 16 C/SCA/125/2014 JUDGMENT Commissioner of Income­tax reported in which the Supreme Court observed that the mere fact that the case of the assessee was accepted as correct in the original assessment for an assessment year, does not preclude the Income tax officer from reopening that assessment on the basis of his findings of fact made on the basis of fresh materials obtained in the course of assessment for the next assessment year. 2) Phool Chand Bajrang Lal and another v. Income­tax Officer and another reported in (1993) 203 ITR 456, the Supreme Court considered as situation where, in the original assessment, a certain claim of the assessee was accepted. On subsequent information received by the Assessing Officer that the Managing Director of the assessee company had confessed that the company had not advanced any loan to any person during the period under consideration, on such basis, notice for reopening was issued. The Supreme Court held that subsequent information being definite and reliable, notice for reopening will be valid. It was not a case of mere change of opinion. It was observed that acquiring fresh information, specific in nature and reliable in character, relating to a concluded assessment which went to expose the falsity of the statement made by the assessee at the time of the original assessment was different from drawing a fresh inference from the same facts and material available with the Income­tax Officer at the time of the original assessment proceedings. The two situations were distinct and different. 3) Multiscreen Media Private Limited v. Union of India and another reported in (2010) 324 ITR 54 (Bom), Page 6 of 16 C/SCA/125/2014 JUDGMENT where the Bombay High Court drawing the distinction between the expressions ‘change of opinion’ and ‘mere change of opinion’ observed that a mere change of opinion is not enough. A change of opinion is permissible provided it is grounded on additional or tangible material. 4) Devgon Rice and General Mills v. Commissioner of Income­tax and another reported in (2003) 263 ITR 391, where the learned Judge of Punjab and Haryana High Court held that when there was a failure to disclose material facts necessary for assessment or the facts disclosed were found to be untrue, notice for reopening would be valid. 7. We may appreciate the reasons recorded in the background of well laid down parameters for reopening of assessment which was previously framed after scrutiny. We are conscious that such notice has been issued within a period of four years from the end of relevant assessment year. Despite which, it is undisputable that reopening of assessment cannot be resorted to by the Assessing Officer on a mere change of opinion. We are conscious of the distinction between the expressions ‘change of opinion’ and ‘mere change of opinion’ as highlighted by the Bombay High Court in case of Multiscreen Media Private Limited (supra). The reasons recorded by the Assessing Officer are brief. They pertain to the material on record. The second paragraph of the reasons reads as under : “On going through the records, it is seen that ….” Page 7 of 16 C/SCA/125/2014 JUDGMENT 8. The entire material thus was taken by the Assessing Officer from the record itself. Contrary to what was canvassed before us by the counsel for the Revenue, there was no additional, independent or extraneous material relied upon by the Assessing Officer in the reasons recorded for issuing notice for reopening the assessment. Any further affidavit or statement from any other source would not cure this position. What is of crucial importance for judging the validity of notice for reopening is the reason recorded by the Assessing Officer. In such reasons, he stated that on going through the record, he found certain facts, according to which, the claim of deduction under section 80­IB(10) of the Act was not sustainable. 9. The decision of the Supreme Court in case of Ess Ess Kay Engineering Co. P. Ltd.(supra) and Phool Chand Bajrang Lal and another (supra) are therefore, clearly not applicable. Present is a case where the Assessing Officer relies on the material already on record to contend that the claim for deduction under section 80­IB(10) of the Act of the petitioner assessee was not valid. Being a case of reopening within four years of original assessment, if during the scrutiny such claim was not examined, for valid reasons, it may be open for the Assessing Officer to examine the same even on the basis of material on record. In case of Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income­tax reported in (2013) 350 ITR 266 (Guj), this Court had an occasion to examine at considerable length, the parameters for reopening of assessment within four years. The contention of the counsel for the assessee, that even in such a case, the Page 8 of 16 C/SCA/125/2014 JUDGMENT reason to reopen must be based on material extraneous to the record, was rejected. It was held that the Assessing Officer must have some tangible material to form a belief that income chargeable to tax had escaped assessment. Such tangible material need not be alien to record. It was observed that reopening of assessment within a period of four years could be made as long as it is not based on mere change of opinion. Merely, because certain material which is otherwise tangible and enables the Assessing Officer to form a belief that income chargeable to tax has escaped assessment, formed part of the original assessment record, that per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression ‘tangible material’ does not mean material alien to original record. 10. In the same judgement, however, it was held that if a certain claim is examined during the scrutiny assessment proceedings, queries are raised and thereafter, the claim is accepted, with or without reasons, the same cannot be subject matter for reopening on the basis of same material since it would amount to a mere change of opinion. 11. Similar view was expressed by three Judge Bench of Delhi High Court in case of Commissioner of Income­tax v. Usha International Ltd. reported in (2012) 348 ITR 485 (Delhi). It was held that in a case where the assessment order itself records that the issue was raised and decided in favour of the assessee, reassessment proceedings will be hit by the principle of change of opinion. It was further observed that reassessment proceedings will be invalid in Page 9 of 16 C/SCA/125/2014 JUDGMENT case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such a situation, it should be accepted that issue was examined, but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. 12. In the present case, during the scrutiny assessment, the Assessing Officer raised a specific query regarding the petitioner’s claim for deduction under section 80­IB(10) of the Act under a show cause notice dated 21.12.2011. He stated thus : “During the relevant AY it has been found that building construction activity has been carried out by the assessee in the names of Shiv Abhishek Project and Pooja Abhishek under the banner of M/s Satyam builders. The comparative performance and financial details of these projects are laid down in the Table below. Sr. No. Particulars Shiv Abhishek Project Pooja Abhishek Project Description 80IB(10) Non-80IB(10) 1 Project It’s purely Residential project Its residential cum commercial projects 2 Total sale 9696500 12,60,000 3 Gross Profit (in Rs) 2159675 49000 4 GP(In %) 22.30% 3.89% Thus apparently the profit rate has been shown at a higher rate in the projects in which deduction u/s. 80IB is available. This is not found acceptable since the parameters of be the building projects under hand are Page 10 of 16 C/SCA/125/2014 JUDGMENT similar and there is no reason as to why the profit rate emerging from the 80IB project should be higher than the other project located in the same area and having the same parameters. 4. Sub­section80IA of the IT Act, 1961, provides that : “10 Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business between to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall in computing the profits and gains of such eligible business for the purposes of the deduction under this section take the amount of profits as may be reasonably deemed to have been derived there from. As per subsection 80IB(13) of the IT Act, 1961, the provision contained in Subsection 80IA (1) shall be, apply to the eligible business under sub section 80IB (10) of the IT Act, 1961. 5. Hence in light of the facts of your case, that the business of Shiv Abhishek Project which is enjoying the benefit of the 80IB deduction and Pooja Abhishek Project, which is not eligible for 80IB deduction, you are requested to show cause why the excess profit as shown in the 80IB project should not be disallowed and reasonably profit should not be taken as eligible for the purpose of deduction u/s. 80IB of the IT Act, 1961, as per provisions of sub section of the 80IA(10) r.w.s.80(13) of the IT Act, 1961.” 13. In response to such query, the petitioner placed her objections and material in support of such objections. In the assessment order, the Assessing Officer carried out Page 11 of 16 C/SCA/125/2014 JUDGMENT detail discussion and devoted several pages to conclude that the entire claim of deduction under section 80­IB(10) of the Act could not be granted. He reduced the claim to a reasonable profit of 3.89% shown for another housing project of the petitioner as against the profit at the rate of 22.3% claimed by her in the return. Eventually, out of a total claim of Rs.21,59,675/­ made by the petitioner, he disallowed a sum of Rs.17,82,942/­. 14. It can thus be seen that the claim of deduction under section 80­IB(10) of the Act came up for scrutiny minutely by the Assessing Officer in the original assessment proceedings. He disallowed the claim to the extent he was convinced that the sames was exaggerated. He allowed only part of the claim. 15. It is true that this pointed element of the housing project not having been completed within 10 years of the date of development permission granted by the local authority was not raised by the Assessing Officer. However, in the return filed, this was virtually the only claim of the petitioner. The petitioner had declared gross total income of Rs.22,85,259/­ and claimed deduction under section 80­IB(10) of the Act of Rs. Rs.21,59,675/­. If the Assessing officer had any doubt about the basis of claim itself, the same could have been examined. On the basis of the same material, it would now not be open for the Assessing Officer to reexamine the claim on the premise that a certain element of the claim was not gone into at the time of original assessment proceedings. Page 12 of 16 C/SCA/125/2014 JUDGMENT 16. In case of Gujarat Power Corporation Ltd.(supra), this Court did leave some room for the Revenue to argue that if a certain element of claim was not gone into by the Assessing Officer in the original assessment, reopening may still be permissible. The Court observed as under : “48. Before closing this issue, we would like to clarify one aspect. We have expressed our opinion on the question framed by us. In a given case, it may so happen that a particular claim may have many facets. For example, a claim of deduction under section 80­HHC of the Act would have various parameters. If one of the parameters is scrutinized or accepted either with or without reasons, that by itself may not mean that the entire claim of deduction under section 80­HHC of the Act stood verified and accepted by the Assessing Officer. We hasten to add that each case must depend on facts individually and in a given case, it may be possible for the assessee to argue that all aspects of the claim were examined or that different facets of the claim were so inextricably interlinked that the assessing officer must be taken to have examined the entire claim. We only clarify that our answer to the second question must be seen within the limited scope of the question itself.” 17. In the said decision itself, the Court observed that each case must depend on facts individually and in a given case, it may be possible for the assessee to argue that all aspects of the claim were examined or that different facets of the claim were so inextricably interlinked that the assessing officer must be taken to have examined the entire claim. This precisely is the situation in the present case. As noted claim under section 80­IB(10) of the Act was Page 13 of 16 C/SCA/125/2014 JUDGMENT the sole claim of the petitioner in the return filed. The entire claim was examined at length. To the extent the Assessing Officer thought the same was not allowable, after hearing the petitioner and inviting her response, he disallowed the substantial portion of the claim. It is now therefore, not possible for the Revenue to canvas that yet another element of the claim was not gone into by the Assessing Officer and that therefore, fresh look would be permissible. 18. In case of Cliantha Research Limited v. Deputy Commissioner of Income Tax reported in 213 (35) Taxman.com 61(Guj), Division Bench of this Court in somewhat similar background observed as under : “19. In response to such queries, the petitioners had given detailed replies and produced voluminous material to support the claim of deduction. It cannot be stated by any stretch of imagination that such claim of deduction under Section 80IB(8A) of the Act was not examined by the Assessing Officer in the original assessment. It may be that he did not raise specific query to allowability of the claim on the premise that the petitioner was doing scientific research for and on behalf of the companies. However, merely for the failure of the Assessing Officer to raise such a question, in our opinion, would not authorize him to reopen the assessment even within the period of 4 years from the end of the relevant assessment year. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length Page 14 of 16 C/SCA/125/2014 JUDGMENT and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment.” 19. We have now come to the second contention of the petitioner. Contrary to what is canvassed before us, we are not in a position to hold and declare that development permission was granted by the local authority only in February 2007 and, therefore, the completion of housing project in the year 2010 was well within the time limit envisaged under the statute. There is insufficient material for us to hold so. Even the sale deed refer to several dates and events. Without reference to the original documents and further evidence, it would be hazardous for us to accept the petitioner’s contention that for the first time, the development permission was granted by the local authority only in the year 2007. Even otherwise, we are not inclined to undertake such exercise in writ jurisdiction challenging the validity of notice for reopening. Such disputed question of facts need not be examined in a writ petition. The validity of the reasons must be judged on the basis of requirement of reason to believe and not necessarily that the addition must invariably made ultimately. In that context, therefore, we are unable to accept the contention of the petitioner that even otherwise the notice was bad because the reason itself lacked validity. Page 15 of 16 C/SCA/125/2014 JUDGMENT 20. Under the circumstances, subject to observations above, impugned notice is quashed. The petition is allowed. Rule made absolute to above extent. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 16 of 16 "